Time New York: Mon 24 Sep 05:54 am  |  Save 15% on H&R Block Online


Key Predictions for Q3 Earnings Reports of SEE, SITE, ALRM


The third-quarter earnings season is almost in the final lap with 406 members of the S&P 500 Index having reported their quarterly numbers, which makes up 85.4% of the Index’s total market capitalization. Per the latest status as of Nov 3, these companies have put a 7.5% increase in earnings on the back of 6.3% higher sales on the scoreboard. Around 73.9% of these companies delivered positive earnings surprises while 66.7% surpassed revenue expectations. (Read more: The Tech Sector's Impressive Earnings Power on Display)

Taking into account all the S&P 500 members that are yet to disclose their numbers, total earnings for the index is expected to be up 6.5% year over year on a 5.6% increase in revenues in the third quarter. This marks a deceleration from the 11.2% increase in earnings in the second quarter and 13.6% in the first. Nevertheless, despite lower growth projections, total earnings in dollar amount is likely to hit all-time quarterly record at $302.7 billion in the third quarter.

Further, earnings growth graph will eventually pick up from fourth quarter onwards as evident from our projections. Earnings growth will be 8.4% in fourth-quarter 2017, 8.9% in first-quarter 2018, 8.9% in the second and 9.6% in third-quarter 2018. Consequently, these quarters are set to break the expected record levels in the third quarter in dollar terms.

Industrial Products Sector to Log Growth

Industrial production — a measure of the level of output of manufacturing, mining and utilities sectors in a country — dipped at an annual rate of 1.5% in the third quarter. Excluding the effects of the hurricanes, the index would have risen at least 0.5%. Prior to the storms, the manufacturing sector had been buoyed by a stronger global economy that translated to greater demand for manufactured products.

Despite this setback, the industrial products sector, one of the 16 Zacks sectors, is anticipated to log growth of 18.5% in third-quarter earnings while revenues will rise 4.4%. Notably, it is one of the nine sectors that is anticipated to log positive growth this quarter. Also, the industrial products’ upbeat growth projections puts it just a pace behind Energy Sector’s projected 153.1% earnings growth and the Technology sector’s 20.1%.

In this context, we take a sneak peek into three industrial products stocks that are slated to report their third-quarter results on Nov 8.

Sealed Air Corporation SEE is a provider of food safety and security, facility hygiene, and product protection solutions worldwide. The company will report financial results before the market opens. The company’s earnings surpassed estimates in two of the trailing four quarters, with an average negative earnings surprise of 1.64%.

Sealed Air Corporation Price and EPS Surprise

Sealed Air Corporation Price and EPS Surprise | Sealed Air Corporation Quote

Our proven model does not conclusively show that Sealed Air is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. Sealed Air’s Earnings ESP is +3.30% as the Most Accurate estimate of 47 cents is pegged higher than the Zacks Consensus Estimate of 46 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

However, the company currently carries a Zacks Rank #4 (Sell) which when combined with earnings ESP of +3.30% makes surprise prediction difficult. As it is, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Per the Zacks Consensus Estimates, total revenues are expected to inch up 0.03% in the third quarter. The Product Care segment’s revenues are anticipated to go up 3% year over year while the Food Care segment’s revenue will decline 14% year over year. Per projections, volume growth in the Product Care segment will be 0.03%, much lower than 6.1% growth witnessed in second-quarter 2017 and 10.1% in the prior-year third quarter. Volume growth in the Food Care segment will be 0.02%, lower than the 2.7% growth witnessed in second-quarter 2017 but nevertheless an improvement from the 0.6% dip in volumes in the prior-year third quarter.

Volumes growth in North America are likely to remain strong as a result of continued adoption of the company’s innovative solutions and strong-end market demand across all proteins as well as within the e-commerce and fulfillment sectors. However, continued economic uncertainty along with social and political instability in Latin America and EMEA will affect volumes in the region.

Divestment of Diversey Care division as well as the food hygiene and cleaning business within the Food Care division, will be substantially dilutive to earnings in the third quarter. Further, costs associated with the Diversey Care operations and various restructuring actions underway will strain margins. Further, recent resin price increases will dent margins. The Zacks Consensus Estimate for earnings is currently pegged at 46 cents, reflecting a 35.92% year-over-year decline. (Read more: Will Sealed Air Miss Q3 Earnings on Lower Volumes?)

SiteOne Landscape Supply, Inc. SITE, a wholesale distributor of landscape supplies primarily in the United States, will report quarterly results before the market opens.

The company recorded an average negative earnings surprise of 22.30% over the last four quarters. Our proven model does not conclusively show that the company is likely to beat estimates this quarter.

SiteOne Landscape Supply, Inc. Price and EPS Surprise

SiteOne Landscape Supply, Inc. Price and EPS Surprise | SiteOne Landscape Supply, Inc. Quote

The stock’s Most Accurate estimate of 57 cents per share is in line with the Zacks Consensus Estimate, resulting in an Earnings ESP of +0.00% which combined with SiteOne Landscape’s Zacks Rank #3 makes surprise prediction inconclusive. You can see the complete list of today’s Zacks #1 Rank stocks here.

The underlying market trends remain positive and will support SiteOne’s third-quarter results. Sales & marketing initiatives are expected to accelerate market share gains. The Zacks Consensus Estimate for revenues for the third quarter is at $510.9 million, projecting year-over-year growth of 14.9%.

The company’s gross margins continue to benefit from its strategic initiatives and the third quarter will be no exception. SG&A expenses as percentage of net sales anticipated to decline slightly which will boost operating margins. The earnings estimate of 57 cents depicts a year-over-year growth of 58.33%.

Alarm.Com Holdings, Inc. ALRM provides cloud-based software platform solutions for the smart homes and businesses in the United States and internationally. It will report financially numbers after the market closes.

The company’s earnings have surpassed estimates in the trailing four quarters, with an average positive earnings surprise of 73.05%.

Alarm.com Holdings, Inc. Price and EPS Surprise

Alarm.com Holdings, Inc. Price and EPS Surprise | Alarm.com Holdings, Inc. Quote

Our proven model shows that Alarm.Com is likely to pull off a surprise this quarter. The company has an ESP of +0.86%, with the Most Accurate estimate of 20 cents is pegged higher than the Zacks Consensus Estimate of 19 cents. The company’s Zacks Rank #3 and positive ESP makes us reasonably confident of an earnings beat.

Alarm.com has been expanding and enhancing portfolio of video cameras to tap a wide range of commercial customers. In the second quarter, the company expanded its platform to intensify customer engagement and retention. We expect these factors to make significant contributions to Alarm.com’s hardware and other revenues in the to-be-reported quarter. The Zacks Consensus Estimate for revenues for the third quarter is at $83.4 million, projecting a year-over-year growth of 22.9%.

Alarm.com closed the acquisition of Connect and Piper in first-quarter 2017 and the integration has been smooth so far. The company so far has deployed a number of joint development projects with the Connect and Piper teams with a view to ramp up R&D operations and better cater to customers. We expect these moves to contribute to Alarm.com’s revenue and margin expansion in the to-be-reported-quarter. The earnings estimate of 19 cents depicts a year-over-year growth of 1.75%. (Read more: Will Portfolio Expansion Aid Alarm.com Q3 Earnings?)

Zacks' Hidden Trades

While we share many recommendations and ideas with the public, certain moves are hidden from everyone but selected members of our portfolio services. Would you like to peek behind the curtain today and view them?

Starting now, for the next month, I invite you to follow all Zacks' private buys and sells in real time from value to momentum…from stocks under $10 to ETF to option movers…from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors.

Click here for Zacks' secret trade>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

To read this article on Zacks.com click here.

Zacks Investment Research
<-- You can share this post with your network,
or give us your opinion and leave a comment.
Be sure to check our RSS feeds for updates.